On 31 October 2017, the Competition Commission of India (CCI) passed cease and desist orders against certain national and regional trade associations of film artists and producers for engaging in practices of controlling/limiting the supply of services and market sharing. Such acts have been held to be in contravention of Sections 3(3)(b) and 3(3)(c) read with Section 3(1) of the Competition Act, 2002 (CompetitionAct).

Background

Mr. Vipul Shah (Informant), a producer of films, filed an information against Artists’ Associations, comprising the All India Film Employees Confederation, Federation of Western India Cine Employees (FWICE) and its affiliated associations[1], as well as Producers’ Associations, comprising the Indian Motion Picture Producers Association, the Film and Television Producers Guild of India, and the Indian Film and Television Producers Council (Artists’ Associations and Producers’ Associations are collectively referred to as the Opposite Parties). The information alleged a contravention of provisions of the Competition Act on the grounds that:

FWICE and Producers’ Associations had entered into a memorandum of understanding on 1 October 2010 (MoU) whereby inter alia:

Producers could only engage with artists that were members of the Artists’ Associations. Further, producers were restricted from engaging with non-members (Clause 6).

Wages or rates of the members of the Artists’ Association, and the facilities to be provided to them, were fixed per the terms of the MoU.

A vigilance committee was constituted to ensure compliance with the provisions of the MoU (Clause 18).

Further, if producers hired non-members, there were instances of the Artists’ Associations stalling shoots, levying penalties and issuing non-cooperative directives.

Additionally, the Artists’ Associations had passed certain resolutions which, inter alia, laid down the ratio in which artists were to be hired by the producers (e.g., on the basis of region). For instance, they stipulated that if a film was being shot in Mumbai and the dance director/ fight master was from Bengal, Chennai or Hyderabad, the producer would have to engage 70% dancers/ fighters from Mumbai and the rest (30%) per the producer’s choice. (Restrictive Resolutions)

Findings of the CCI

The CCI found a prima facie case against the Opposite Parties and mandated the Director General (DG) to investigate the alleged contravention of Section 3 of the Competition Act. Subsequent to its investigation, the DG concluded that the Artists’ Associations (except EIMPA, NIMPA and SIFCC, since they were not signatories to the MoU) and the Producers’ Associations had contravened the provisions of Sections 3(3)(a), 3(3)(b) and 3(3)(c) of the Competition Act.

In respect to the contravention of the provisions of Sections 3(3)(a), 3(3)(b) and 3(3)(c) of the Competition Act, the CCI’s findings have been set out below:

A. Exercise of jurisdiction by the CCI

Some of the Opposite Parties had argued that trade unions were immune from the provisions of the Competition Act and since the subject matter under consideration was an industrial dispute, the CCI did not have jurisdiction in this matter. The CCI rejected such arguments on the following grounds:

Exemption of trade unions from the provisions of the Competition Act: Since Section 18 of the Trade Unions Act, 1926 (TU Act) granted immunity to trade unions from suits or other legal proceedings in any Civil Court, and the Supreme Court in CCI v. SAIL[2] had conclusively determined the CCI to be only an expert body, therefore, Section 18 of the TU Act did not preclude the application of the Competition Act. Further, it was noted that unlike the Monopolies and Restrictive Trade Practices Act, 1969, the Competition Act did not expressly exempt trade unions from its provisions. Pertinently, this observation is in line with the Supreme Court’s recent decision in the Co-ordination Committee case[3], where it had been observed that a body, while backing the cause of enterprises, could not be considered to be exempt from scrutiny under Section 3 by merely giving it a cloak of trade unionism.

Classification of the instant information as an industrial dispute: Section 2(k) of the Industrial Disputes Act, 1947 defined industrial disputes in terms of matters that pertained to employment or non-employment or the terms of employment or with the conditions of labour. Therefore, matters such as exclusive member to member engagement covered under the MoU did not affect conditions of labour or terms of employment, but rather affected the supply of services in the market, thereby, falling within the purview of the Competition Act.

B. Applicability of Section 3(3) of the Competition Act

The Opposite Parties contended that they were not enterprises within the meaning of Section 2(h) of the Competition Act and, thus, could not be proceeded against under the provisions of the Competition Act relating to anti-competitive agreements. Further, they argued that an agreement between the Artists’ Associations and Producers’ Associations could not be termed as a horizontal agreement given that the artists and producers were vertically linked. The CCI rejected these arguments for the following reasons:

Trade unions as association of enterprises: Section 3 of the Competition Act applies not only to enterprises but also to association of enterprises and association of persons. The CCI by relying on the Supreme Court’s dicta in the Co-ordination Committee case, noted that since each of the artists provided services in return for remuneration, they were engaged in economic activity and were enterprises, consequently, making the trade union an association of enterprises. Lastly, it was observed that in any event, the Opposite Parties would be considered to be an association of persons and resultantly, amenable to Section 3 of the Competition Act.

MoU as a horizontal agreement: While the Opposite Parties, as trade unions, were themselves not engaged in any activity as part of the production or supply chain, the MoU was observed to be a horizontal agreement by the CCI, given that the Opposite Parties signed the MoU as representative of entities operating in the same market.

C. Violation of Section 3(3) of the Competition Act

Exclusivity and Monitoring Condition: The CCI observed that Clauses 6 and 18 of the MoU were in the nature of limiting the supply and distribution of films on account of (i) the mandatory requirement under the MoU to obtain a no objection certification from the trade associations availing the services of the non-members; and (ii) restricting the producers to provide/avail only those services that were specifically permitted under the MoU. Therefore, these practices were held to be in violation of Section 3(3)(b) of the Competition Act.

Fixing of Wages, Extra Shifts, etc: The CCI observed that Clause 8 of the MoU, which related to fixation of wages, payment for extra shifts, etc, could have the effect of fixation of prices when read with Clause 6 of the MoU. However, given that wages and increment were also conditions of labour, they could fall within the realm of legitimate trade union activity. Therefore, this was not held to be in contravention of Section 3(3) of the Competition Act.

Restrictive Resolutions: The CCI observed that the Restrictive Resolutions, inter alia, had the effect of (i) forcing the producers to hire workers in the aforementioned ratio regardless of workers having the required skills; (ii) limiting and controlling the provision of services; and (iii) allotting services on the basis of geographical area. Accordingly, the Restrictive Resolutions were held to be in contravention of Sections 3(3)(b) and 3(3)(c) of the Competition Act.

CCI’s Conclusion

In terms of penalty, the CCI, after considering various factors such as the existence of the practices covered under the MoU since 1966 as a mechanism for resolving disputes; members of some of the associations being daily wage workers; and only two clauses being violative of the Competition Act, noted that issuance of cease and desist orders would be sufficient to meet the ends of justice. Further, the CCI affirmed the DG’s finding in relation to EIMPA, NIMPA and SIFCC and did not issue any orders against them on grounds of them not being signatories to the MoU.

Key Takeaways

In this decision, the CCI has taken the opportunity to re-emphasise its position re anti-competitive exclusivity. While determining the position of trade unions, the CCI also reiterated the evolving undertone of substance over form (as previously affirmed by the Supreme Court in its examination of an enterprise in the Co-ordination Committee case) and conclusively determined that trade unions are not immune from antitrust scrutiny. Interestingly, the CCI construed Section 3(3) of the Competition Act in its true spirit, by observing that while trade unions themselves directly did not form part of the production chain, an agreement amongst two trade unions could nonetheless be a horizontal agreement, given that these bodies acted as representatives of their constituent members operating in the market.

Further, the decision also evinces the CCI’s approach in applying the principle of proportionality in its determination of penalty. The CCI steered away from imposing a monetary penalty after taking into consideration the welfare objective of the MoU, long existing practices and the financial background of the members of the trade unions.

Partner in the Competition Practice at the Mumbai office of Cyril Amarchand Mangaldas. Anshuman advises on the full range of competition matters, including merger control, abuse of dominance and cartel enforcement. He can be reached at anshuman.sakle@cyrilshroff.com

Partner in the Competition Practice at the Mumbai office of Cyril Amarchand Mangaldas. Bharat advises on the full range of competition matters, including cartel enforcement, abuse of dominance, merger control and competition audit and compliance. He can be reached at bharat.budholia@cyrilshroff.com

About

A blog examining significant updates in the Indian competition law regime that impact doing business in India.

About Our Firm

Cyril Amarchand Mangaldas was founded in May 2015 to continue the legacy of the 100-year old Amarchand & Mangaldas & Suresh A. Shroff & Co., whose pre-eminence, experience and reputation of almost a century has been unparalleled in the Indian legal fraternity. With a long and illustrious history that began in 1917, the Firm is the largest full-service law firm in India, with over 625 lawyers, including 100 partners, and offices in Mumbai, New Delhi, Bengaluru, Hyderabad, Ahmedabad and Chennai. Several of our professionals are cited as leading practitioners by global publications like Chambers and Partners, International Financial Law Review, Asia Legal 500 and Euromoney. Visit our Website

Our India Corporate Law Blog

A thought leadership initiative to highlight significant developments in Indian corporate and commercial law that impact the corporate ecosystem and doing business in India. Visit this Blog